Standard Chartered's Q1 Result Solid, Improving Profitability Drives Rerating in the Medium Term

Standard Chartered’s solid first-quarter result was above consensus expectation, mainly on higher-than-expected net interest income and trading income. The higher net interest income was underpinned by a 7-basis-point improvement in net interest margin against the same period last year and a 10-basis-point increase on the fourth quarter. The increase in net interest margin more than offset a decline in average interest earning assets. The latter was attributable to an earlier announced optimization of risk weighted assets, which declined by USD 10 billion against 2021 to USD 261 billion. Further optimization is expected to see risk weighted assets flat for the full year despite overall lending growth of 3% annually over the three years. The bank’s outlook was positive with full-year net interest margin now expected to be 1.4%. A further increase in 2023 is expected, and management noted net interest margin could return to its pre-COVID-19 (2019) level. As such, total income is expected to be above earlier guidance of 5%-7%. The higher income does provide the bank additional headroom to invest as operating expense is also expected to track higher. Overall cost guidance is unchanged, and cost to income is expected to decline to 60% by 2024.